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By MPFX
Our aim at S.T.I. is to make Technical Analysis as simple and uncomplicated as possible.
We will try to explain the concepts of each indicator in Plain English and include examples where
possible.
No indicator is 100% accurate but by the use of several at the same time we may be able to
eliminate many False signals.
We will start with the basics and work our way up to the more complex indicators.
1.
by MPFX
The basis for drawing trend lines onto charts is probably one of the most basic to do and
master, yet it is one of the more powerful and reliable indicators used to determine a change in
trend.
Trend lines can be applied to many different indicators but for the reference of this article we will
use closing price data. This is the most common data used.
We will discuss the other uses at a latter stage.
Use the list below to navigate or simply scroll down.
1.
What are trend lines and how to draw them !
2.
Support lines.
3.
Resistance lines
4.
What to look for / Breakout's
Trend lines
When viewing most
charts a pattern of
the price formation
is usually visible to
the naked eye. This
pattern is called a
trend and these
trends have
three
distinct patterns.
An Up trend with trend line drawn in
UP TREND
:
Prices increasing
DOWNTREND
:
Prices decreasing
HOLDING OR
FLAT LINE
:
Prices stagnant or
small trading range.
A trend line is
basically a line
drawn joining
consecutive lows
or highs in a trend
pattern.
A down trend with trend line drawn in
Draw a line
connecting the
lowest points on a
chart in an
up
trend.
Draw a line
connecting the
highest points on a
chart in a
down
trend.
Draw BOTH highs
and lows for a
holding pattern
Holding pattern with BOTH lines drawn in
Note Rising
volumes on lead
up to Breakout
TOP
Support Line
When we draw a line
joining all the lows of a
price pattern together
the line is called a
Support Line.
Support line
These lines are a low
point on the chart on
which the price
bounces
off consistently when
reached.
Many traders elect to
BUY when the price
reaches this point.
It is our belief that the
market likes to test
Support lines more
than once and we look
for BUY signals after a
second or third
testing of this line.
You will hear comments about support levels consistently on the chat
rooms and in editorials.
If a support line is
broken then the current
trend is said to be
broken or in a Down
Trend and the market
will look for a lower
price to set up a new
support level.
These levels ARE very powerful and SHOULD be
monitored diligently when reached.
TOP
Resistance
lines
When we draw a line
joining all the tops of a
price pattern together
the line is called a
Resistance Line.
It is basically the exact
opposite of the support,
it is a series of highs on
a
chart where the
market continually
rejects the price thus
not allowing it to
go any
higher.
Resistance line is drawn in RED
.
Support in Green
Many traders elect to
SELL when the price
reaches this point.
It is our belief that the
market likes to test
Resistance lines
more than once and
we look for SELL
signals after a second
or third testing of this
line.
The same applies for
resistance in that it is a
powerful level and
one SHOULD
think
seriously about taking
profit at this level.
Some traders like to
sell small parcels to
average out their price
paid and leave the rest
in hope of greater
gains.
TOP
What to look
for! Breakouts
Resistance Broken
We have now
established what are
trend lines and how to
draw them.
When one
of theses lines is
breached is called a
Breakout.
If a breakout occurs
on a Resistance line
many Trader's will
class this as
BUY
signal and act
accordingly.
If a breakout occurs
on a Support line
many Traders will
class it as a
SELL
signal an act
accordingly.
Please note how the
OLD Support line
NOW becomes the
NEW Resistance line
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